Where does National really want to take retirement income policy?

National’s retirement income policy ambitions are becoming clearer. In the early 1990s, as part of Ruth Richardson’s clever plan, the burden and risks of retirement were to be shifted to the private sector. She put in place legislation to change NZ Super into a welfare benefit- with a draconian income test while all the tax incentives for private saving under Roger Douglas had already been removed. For a brief time, NZ had cheapest, meanest, elder poverty creating, pension system in the OECD.

The shock and horror that followed meant National had to backdown, but recent policy announcements make me think they are heading in the same direction as in 1991. While meaningful incentives for KiwiSaver are all gone, Luxon promises to force private contributions higher to match Australia’s 12%.  

Matthew Hooton says Luxon’s KiwiSaver move is good, now raise the Super age, and goes on to argue that KiwiSaver changes already announced in this year’s Budget justifies moving the age up by three months a year from April 2026. He can’t be serious surely: the people reaching 65 for the foreseeable future wont benefit from Luxon’s changes.  

While National is unlikely to upset a large number of people by a rapid increase in the age, it does intend saving costs.  Despite Luxon’s current pseudo-support of NZ super, extra funds in KiwiSaver will eventually be offset against the state pension just as in Australia. That’s their long game plan. Welcome to 1991.

Much of the commentary is paving the way for National. New Zealanders are particularly susceptible to being told Australia does things far better.   Erik Frykberg Listener (29th November) portrayed the aborted Labour’s compulsory superannuation scheme as the biggest mistake that Muldoon ever made. Using the lens of self-interested fund managers, he suggests that if the scheme had continued, we would be rolling in a trillion plus dollars of retirement wealth. All of the real resource limitations in the NZ economy would be magicked away.  And, if not the envy of the rest of world, at least the economy would be doing as well as Australia by now? Yeah right.

Sure, some people would do well personally, but conveniently ignored, more saving in one form can mean less saving in another. And even if there were extra saving there’s no guarantee that it would equate to better and increased real investment in New Zealand’s social and economic assets. Look no further than the NZ Super Fund where the large pot of paper assets, set to reach 35% of GDP by mid-century, largely represents investment in other countries’ share-markets. 

Lacking in the story is what happens when you apply the lens of retirees who are not fortunate enough to benefit much, if at all, from the employment-related contributions as they don’t have a history of well-paid full-time jobs. 

Before the introduction of NZ Super in 1976, there was growing elder poverty especially affecting women. Some of us remember the annual campaigns to provide food parcels to old age pensioners. At 60, women might receive a jointly means-tested old age pension providing a token of support for their years of domestic and childrearing duties or low paid work.  Or they could wait for an equally inadequate, taxable universal super at age 65.

Under Labour’s 1974 compulsory scheme, the plight of the already retired and about to be retired were ignored. As the scheme would not mature for 40 years, elder poverty was set to grow to even more uncomfortable levels. Even when mature, many groups, women, Māori, Pacifica, self-employed, long-term sick and disabled would do poorly out of the scheme.

The Listener article refers to how wonderful the Australian compulsory scheme is and quotes average balances at age 65. But the average is strongly affected by people with very large super balances, so median is a better measure. The Association of Superannuation Funds Australian (ASFA) report  for those aged 60 to 64, a male average superannuation balance of A$395,582 but a median of only A$219,773. For females the average was A$313,360 and the median A$163,218.  

While 50% of women aged 60-64 who belong to the scheme have less than $163,218, 25% have less than A$49,200 in spite of Australian tax incentives and compulsion.  The top 10%on the other hand have a median of around A$800,000 so there is a vastly unequal outcome.

If those who don’t have an account are included, the median would be much lower. ASFA stats show ‘Around 23 per cent of females aged 60-64 have no superannuation compared to 13 per cent of males’. 

We should abstract from the politics of what Muldoon did and look at benefits of where we ended up.  For the past 50 years we have enjoyed the poverty-reducing effect of a basic universal taxable pension set in relation to wages. For many women of my mother’s generation, it represented their first independent income since marriage.  It has been a great equaliser, very efficient to operate and extremely popular. It has underpinned the voluntary work of older people that is critical not onl  for young parents, but in the Arts sector and charities of all kinds.  The steady spending of older people who have a reliable basic income helps stabilise the economy in times of recession.  

Now we have Luxon reversing ‘Muldoon’s mistake’ and raising the total contribution KiwiSaver to 12% of earnings. Making us more like Australia a jointly means-tested superannuation is surely the next logical step after a successful re-election?  Be careful what you wish for and remember while well-designed contributory schemes have their place, they deliver the most for high earners in secure well-paid work while leaving others further behind. 

Susan St John – Honorary Associate Professor, Pensions and Intergenerational Equity (PIE) hub, Economics policy Centre, University of Auckland.